The interconnector disconnect

Fieldfisher energy experts David Haverbeke, Lis Blunsdon and Yohanna Weber, discuss why more attention needs to be focused on critical power infrastructure.

For merchant interconnectors, legal certainty and security of investment need to be satisfied before a private investor, or a consortium of investors, will commit to funding a project.

To date, the experience of merchant interconnector operators seeking to develop EU projects has generally been a struggle.

There are good reasons why the European Commission might be ambivalent towards merchant interconnectors.

For one thing, regulated energy links are more transparent and easier to monitor and manage than privately funded projects – an argument that carries some weight considering the strategic importance of large energy infrastructure.

There is also a policy issue, centred on the idea that congestion revenues should be used to fund more investment in interconnectors, rather than private sector returns.

Some are worried that merchant investment will crowd out regulated investment, causing TSOs to lose control of vital infrastructure to benefit of financiers and the detriment of consumers.

However, cheerleaders for private sector interconnectors point out that merchant operators can potentially build bigger and more innovative projects faster than TSOs can, so it seems counterproductive not to encourage this approach, albeit within firm parameters.

Application and approval procedures for interconnector projects also need to be streamlined to encourage more projects to be built – especially by private investors, who are less willing to wait for extended periods to get their money back.

Lots of interconnector projects get stuck in the permitting process, which takes a minimum of 3.5 years to gain consent.

Projects seeking PCI status take even longer to get from application to approval, commonly taking in excess of five years for gas interconnectors and more than 10 years for electricity.

An ACER report published in July 2018 on the progress of PCIs found that almost half of electricity and gas projects were delayed or rescheduled, with permitting the most commonly cited reason for electricity project rescheduling.

Gas projects were delayed due to finance and other market issues, but permitting was also high on the list of stumbling blocks.

To break this impasse, both the public and the private sector need to come up with new ways of bringing more finance and expertise into the interconnector market and consider how merchant assets can be aligned with public policy goals.

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